No light in sight
The first half of 2003 does not look promising, businessmen believe. Niveen Wahish reviews a recent survey
The Business Barometer January 2003 -- a survey carried out by the Egyptian Centre for Economic Studies (ECES) -- is out. The survey studies the performance of 210 public and private firms during the last six months of 2002, as well as their expectations for the first half of 2003. The companies surveyed include 165 manufacturing firms, 35 firms from the construction sector and 10 firms from the tourism sector.
The barometer's overview points to the fact that despite government efforts to overcome the protracted slowdown in economic activity and external shocks over the last couple of years, "the slow pace of reform, increasing pressure on the pound and the threat of an attack on Iraq dimmed expectations and eroded confidence."
The shift to a floating exchange rate regime in January 2003 "is an important positive step, but it is not sufficient by itself to ensure stability and recovery of the Egyptian economy in the short and medium runs", the overview said.
In the short run, "a coherent macroeconomic framework is needed to ensure consistency between the newly adopted exchange rate regime and other macroeconomic variables."
The ECES team who prepared the survey believe that the recently adopted Central Bank of Egypt (CBE) monetary policy emphasising inflation-targeting, the use of indirect monetary policy instruments and the introduction of the draft banking law, which promotes CBE operational independence, are "steps in the right direction".
However, this vision needs to be translated into action and the necessary institutional capacity to implement it must be developed. Alongside this, the team recommended progress on the structural reform agenda, with further opening up of the economy, financial sector reform, privatisation and institutional reforms as prerequisites to boost confidence in the medium run. "In the absence of reform, the ability of the economy to promote exports and generate much-needed jobs will be compromised and the voice of reform critics could gain strength."
Eighty per cent of respondents in the survey believed that economic growth in the last six months of 2002 remained stagnant or declined. While one-third of the firms expect improved economic growth in the coming six months, those preparing for the worst outnumbered those in the June 2002 survey. The tourism sector players topped the list of pessimists, while construction sector firms were the least pessimistic.
A total of 73 per cent of the firms reported no change or a decline in their production in the last six months of 2002. For the first half of this year, 52 per cent of the firms plan to increase their production, but more firms plan to reduce production compared to the previous survey. The least ambitious plans for expanding output were reported in the tourism sector, followed by manufacturing.
On a positive note, the firms reported that domestic and international sales were higher than their sales results in the previous survey. Higher domestic sales were reported by 67 per cent of the firms, while 70 per cent announced increased or stable exports. Most firms expect domestic and international sales to remain the same or decline in the first half of 2003 compared to the previous six months. In fact, 40 to 45 per cent of the firms anticipate lower levels of exports.
A total of 85 per cent of respondents reported stable or modest increases in final product prices during the period of the survey. The same is expected to prevail for the next six months. This is attributed to the slowdown in economic activity.
However, input prices increased for 97 per cent of the firms and the pattern is expected to continue during the first half of this year.
Al-Ahram Weekly Online : 13 - 19 March 2003 (Issue No. 629)
Located at: http://weekly.ahram.org.eg/2003/629/ec3.htm